The thought of a double-dip recession continues to fascinate the media. The housing numbers and some slowing of manufacturing numbers have stoked the fire. Do these numbers in isolation send a message of impending recession?
- Personal income for May up 0.4%.
- Personal spending up 0.2% for May.
- ISM manufacturing at 56.2, indicating expansion.
- ISM non manufacturing at 55.4%, indicating expansion.
Even declining unemployment was looked at as a negative, with swings in April and May due to U.S. Census workers being hired and let go. Employment continues to be the worry blanket of our economy.
One has to have a strategic view of the economy. The year-over-year trends in employment are still showing positive signs of a sustained recovery. Private-sector employment contributed 83,000 jobs in May, adding continued momentum to the year-over-year trend.
The Challenger Job-Cut Report counts and categorizes announcements of corporate layoffs based on mass layoff data from the Department of Labor. This chart suggests two thoughts. One, that the level of layoffs corresponds to a period of expansion, not recession. Two, that a decline in layoffs is a leading index versus jobless claims, which is a lagging index. This suggests that while jobless claims are now doggedly high, they have and will decline to meet the current level of layoffs.
So does this level of economic activity warrant a 10-year UST yield of 2.92%? The last time we saw the UST below 3% was in the midst of the financial crisis. The UST 10- year declined vigorously from 4% as a flight to quality play because of eurozone issues. While this threat dissipated, slower economic numbers brought the double dip back into fashion. This pushed the UST 10- year even lower. The same trending can be seen in the U.S. stock markets.
An oversold “bubble” is brewing once again. When it “pops,” as bubbles always will, the impact will be higher rates and a Dow back at 11,000.